Mongolia’s dependence on Russian fuel gives it short-term supply stability but leaves it structurally exposed. Russia’s temporary petrol export ban spared Mongolia through bilateral arrangements, underscoring the strength of the relationship while revealing the risks of relying on Moscow. The planned domestic refinery may improve fuel availability, including aviation fuel, but affordability and sustainability challenges will remain. Mongolia’s energy strategy must move beyond refining and supplier diversification towards reducing oil demand through electrification and renewable power expansion.

Mongolia’s mining-led economy is fully dependent on imported fuel, which stands as the country’s single largest import, accounting for roughly one-third of total imports. Despite Mongolia’s goal of energy independence, the country is constrained by structural and financial barriers that weaken its energy security calculations.

The transport and power sectors dominate Mongolia’s energy security policy, while agriculture and industry play less visible but important roles. The transport sector is particularly exposed to external shocks and geopolitical pressures because the country relies on imported fuel, including for an expanding aviation industry. To develop a coherent energy security strategy, Mongolian policymakers must balance the need for reliable supply, affordability and long-term sustainability.

Mongolia’s transport sector relies entirely on imported fuel, with 95 per cent coming from Russia and the remainder from China. Ulaanbaatar’s close relationship with Russian energy company Rosneft has allowed the country to secure a discounted supply of petroleum products. Mongolia has its own crude oil deposits, but the lack of a domestic refinery limits its ability to convert this natural endowment into usable fuel. To address availability and sustainability challenges, the country is pursuing a diversification strategy, though with limited success.

Mongolia began construction on its first oil refinery, financed by India, in 2018, which is expected to be completion expected by 2028. According to Mongolia’s long-term development plan, Vision-2050, once the refinery project is fully operational, domestic oil production is expected to surpass imports, reducing dependency on foreign supply. Yet Mongolia’s Ministry of Finance has noted that financing reforms are needed to ensure the refinery becomes operational by its target deadline.

Recognising the geopolitical risk of near-total dependence on Russian energy, Ulaanbaatar has sought to diversify its fuel supply by pursuing partnerships with other countries. In March 2026, the government announced that Mongolia had entered talks with Kazakhstan on the trade of petroleum products. Despite these efforts, Mongolia’s economy continues to rely heavily on Russian fuel.

On 1 April 2026, Russia imposed a temporary ban on petrol exports as Kyiv and Moscow exchanged attacks on critical infrastructure and global energy prices rose amid the conflict in the Middle East. Countries that had intergovernmental agreements with Moscow were exempt, including Mongolia, signalling the strength of the bilateral relationship despite Russia’s geopolitical position. But energy prices have increased amid the global oil crisis, further amplifying affordability concerns. The government is working to maintain a stable price for AI-92 fuel, used in most road vehicles, while allowing price increases for other fuel types.

The 15-year aviation fuel agreement between Russia and Mongolia, signed in April 2026, suggests that Ulaanbaatar prioritises a stable fuel supply even at the cost of continued geopolitical dependency. This choice may explain the lack of domestic aviation fuel production. Though the long-anticipated oil refinery has the capacity to produce 80,000 tonnes of aviation fuel per year, Mongolia has chosen to rely on bilateral ties amid growing tourism and the global energy crisis.

Transport electrification should also play a central role in Mongolia’s energy security strategy. Total reliance on oil for the transport sector is neither sustainable nor secure, given national security and climate concerns. The Vision-2050 strategy identifies the need to reduce transport emissions through electrification, but implementation remains at a preliminary stage. The government must take concrete steps to electrify Mongolia’s transport system, supported by incentives, infrastructure investment and expanded grid capacity.

By late 2024, Mongolia had only 1670 electric vehicles, even as transport electrification expanded globally. Proximity to China, the world’s largest electric vehicle market and manufacturer, has arguably created opportunities for adoption, yet this has not translated into concrete policy.

It is unclear why policymakers and other stakeholders have not emphasised electrification, but it should become a central priority in Mongolia’s energy security strategy. Ulaanbaatar could seek Chinese investment in domestic charging infrastructure and electric vehicles. Policymakers could also provide incentives, including low tariffs on imported electric vehicles, tax incentives for charging costs and even grid connections with northern China.

Accelerating Mongolia’s transport electrification would require substantial investment, incentives and a stable grid. During the 2025–26 winter, Ulaanbaatar — the world’s coldest capital city — experienced frequent electricity and heating disruptions caused by its fragile and outdated power system. Decades of underinvestment and subsidised utility prices led to near-paralysis of the city’s power grid. Strong state intervention is necessary if electrification is to be prioritised. Mongolia’s efforts to expand solar and wind capacity could further push policymakers towards adopting policies that strengthen domestic power supply and transport electrification.

Mongolia has taken a strategic approach to its energy security policy, from constructing a domestic oil refinery to forging fuel partnerships. But it remains structurally exposed to global price shocks and geopolitical risks. Ulaanbaatar relies on Russian fuel, a fact that Moscow understands. This arrangement does not protect the country from external shocks or geopolitical pressure. To secure its energy future, Mongolia must look beyond domestic fuel production and foreign partners by adopting an ambitious electrification plan, strengthening grid infrastructure and seeking investment from China.

Telmen Altanshagai is NXT Fellow at NXT Conclave.

Published Date:2026-06-25